2018 (5) TMI 1712 - AT - Central Excise

Recovery of CENVAT credit - goods received after being returned by their customers for reprocessing under rule 16(1) of the CER 2002 - the allegation is that the appellants have not shown in their RG23 Part- I Register that the goods were returned by their customers and were accounted for - Held that - There is no dispute that the appellants have maintained a separate register of the returned goods and have taken credit of CENVAT under Rule 16 without following the requirement of entering the details in RG 23A Part-I. However they have entered the details of the credit in RG 23 A Part-II - It is a well settled principle that the substantive benefit of CENVAT cannot be denied for procedural lapses - Credit of duty paid on the returned goods under Rule 16 allowed. Penalty u/s 11AC - element of fraud, collusion, wilful misstatement etc. not present in the SCN - Held that - in para 6 of the SCN not only is there an allegation of irregularity but there is also an allegation of evasion of duty of excise on all the four counts - penalty not imposable. CENVAT credit - inputs found short - case of appellant is that there was some process loss - Held that - Appellant relied upon the case laws of the Tribunal HINDUSTAN COPPER LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, BELAPUR 2012 (9) TMI 858 - CESTAT MUMBAI . These case laws pertain to cases where there was a presumption by the department that goods have been manufactured and removed or inputs have been removed using the fixed formula without accounting for the process loss. The decision was that process loss must be reckoned. Such is not the case here and the ratio does not apply to this case because allegation here is that whatever stock of raw-material was shown in the register by the appellant was not found in stock when physically verified - When the department checked the stock and found that 35.525 MTs of raw-material was not available physically but was available in their RG23A Part-I register, the appellant is liable to reverse the credit or pay duty equivalent to this amount. Appeal allowed in part.

Summary

Issues involved:
1. Availing CENVAT credit on goods returned for reprocessing.
2. Disputing penalty under Section 11AC for negative CENVAT credit balance in March 2012.
3. CENVAT Credit taken on inputs found short during verification.

Analysis:

Availing CENVAT credit on goods returned for reprocessing:
The appellants faced allegations regarding the improper entry of goods returned by customers in their records for availing CENVAT credit. The dispute revolved around the requirement under Rule 16 of CENVAT Credit Rules and Rule 9 of CENVAT Credit Rules 2004. While the appellants maintained a separate register for returned goods and took credit under Rule 16, they failed to enter these details in RG 23A Part-I as mandated. The adjudicating authority and Commissioner (Appeals) denied credit due to this procedural lapse. However, the tribunal emphasized that substantive CENVAT benefits cannot be denied for procedural errors. Consequently, the tribunal allowed the credit for duty paid on the returned goods under Rule 16.

Disputing penalty under Section 11AC for negative CENVAT credit balance:
The appellant did not contest the negative CENVAT credit balance in March 2012 but challenged the penalty under Section 11AC, arguing the absence of allegations like fraud or collusion in the show-cause notice. The tribunal examined the show-cause notice and found allegations of irregularity and evasion of excise duty on all counts, leading to the dismissal of the appellant's argument against the penalty imposition.

CENVAT Credit on inputs found short during verification:
Regarding the issue of CENVAT Credit taken on inputs found short during verification, the appellant claimed process loss to justify the shortage. They relied on various case laws supporting the allowance of process loss in such situations. However, the tribunal noted that the appellant's case differed as the allegation was based on the physical unavailability of raw material despite being recorded in the register. The tribunal ruled that the appellant must reverse the credit or pay duty equivalent to the unaccounted raw material.

In conclusion, the tribunal partially allowed the appeal by permitting credit on goods returned for reconditioning despite procedural lapses. The remaining part of the order-in-appeal was upheld, and the appeal was disposed of accordingly.